Home Equity Line of Credit
Article by R. Edward Jones
Home Equity Line of Credit – Is it For You? Home Equity Line of Credit
Let’s set the stage by stating that a home equity line of credit is an effective financial tool for some folks. It is a variable-rate revolving credit line that uses the equity in your home as collateral.
The word “equity” in “home equity line of credit” is defined as the difference between your home’s market value and the amount outstanding on your mortgage. It’s similar to having a credit card with a low interest rate and high credit limit.
One important point to bear in mind is that a home equity line of credit is not your traditional loan. A home equity line of credit is very closely related to a home equity loan but the subtle differences between the two can mean a lot.
Not Your Standard Home Equity Loan
A home equity line of credit is unlike a standard home equity loan in that it does not involve a fixed amount of borrowed money. Whether or not you decide on a home equity loan or a home equity line of credit is a matter of preference. An advantage of a home equity line of credit is that the approval process is a bit less stringent than a home equity loan.
The principal benefit of a home equity line of credit is your ability to control cash flow. It gives you a continuing ability to tap into your home equity. It’s simply a revolving line of credit that gives you the ability to borrow as you need it as opposed to receiving your money in one lump some as with a home equity loan.
You will most often find that a home equity line of credit is one of the cheapest ways to borrow money. If you have numerous home improvements in mind or have other purchases or expenses on the horizon, it might just be what you are looking for. Taking out a home equity line of credit might be a helpful choice if you need an infusion of cash from time to time instead of a lump sum all at once.
Great for Recurring Obligations
It is also an excellent way to pay for tuition or other recurring financial obligations. A home equity line of credit is a good way to finance a new car, room addition, college tuition any other purpose for which you might need extra cash.
The home equity line of credit is a better match than a home equity loan if you have to to have access to funds for more than one academic period for instance (each semester over the next four years). And best of all, the interest is generally tax deductible (discuss with your tax advisor for additional information).
A home equity line of credit is one of the most practical tools that a homeowner can have in his or her financial arsenal. Available to qualifying homeowners, it is a smart choice for financing nearly anything. They are a great way to consolidate high interest credit cards, free up money for home improvements or get your kids off to college.
Pay Interest Only On the Amount You Use
Another of the positive aspects is that it can sit idle until you need it. Once you are approved, you withdraw the cash as the need arises. The great thing about this is that you simply pay interest on the credit you use, saving you hundreds or even thousands of dollars each year on interest payments. A home equity line of credit is an efficient tool because you only meet with interest charges when you tap the line.
Once your home equity line of credit is set up, you’ll have access to an continuing source of low-cost funds to use as you see fit. The interest is normally lower than other types of credit and as we mentioned above, an additional benefit is that the interest is often tax-deductible.
A home equity line of credit is excellent for emergencies and debt consolidation since you can write yourself a loan anytime. For those of us with unpredictable needs for capital, it can be a way to have cash on hand whenever it is needed.
No one should rely on home equity as a chief source of emergency funds, but setting up a home equity line of credit is still a smart move. The main downside is if you default on your loan payments, you may lose your home.
Is a Home Equity Line of Credit for You?
Is a home equity line of credit is appropriate for you. It can be a valuable financial tool for some homeowners. It is getting to be a more popular option among home owners who don’t want to refinance or take out a second mortgage.
Getting pre-approved for a home equity line of credit is a very popular course of action for homeowners and smart consumers. Information on obtaining a home equity line of credit is obtainable from many sources, including online lenders.
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